Execution algorithms: where innovation is driving demand in FX

William Essex explores which FX buy side sectors are now becoming the biggest users of execution algorithms and in what ways the focus on transaction cost analysis in FX is further stimulating the use of algorithms as a key component of best-execution toolsets. FlexTrade's Peter Bondesen is quoted.

Everything is back to normal in the FX market – but it’s a new normal. All around us, corporates are back to funding their cross-border operations; trading desks are back to taking orders and transacting; retail investors are back to piling in behind every new trend. We’ve had ten-plus years of upheaval – not just the crash but also the impact of technology on what we do; plus all that wider IT-accelerated social, political and economic change; lately the worst weather for centuries; all capped off with a European political crisis that mimics 1914 rather too accurately – and yet, behind it all, the FX market is back to moving as it has always moved.

Which is significant. Seven years ago, Credit Suisse launched AES FX. Take-up was sustained, as was competition to dominate the new space. Evangelos Maniatopoulos, global head of AES FX product and trading, Credit Suisse, says: “When Credit Suisse launched AES FX seven years ago, it represented a new approach to executing FX transactions. At the time, our challenge was to convince our customers that it was a viable alternative to the more traditional means of trading FX – click and deal, voice dealing, et cetera. We strongly believed that the benefits of this type of product would be appreciated by customers.” Then, AES FX was the new game in town. Now, many (most, pretty much all) Tier 1 banks have, or are working to have, an algorithmic execution platform to accompany their more traditional execution capabilities.

The new approach to FX arrived just in time for fragmentation – liquidity became (even more?) problematic – and a fresh regulatory emphasis on transparency, thus TCA; Maniatopoulos comments that work by Credit Suisse to develop pre-trade, real-time and post-trade TCA in the FX space “significantly contributed” to the ongoing adoption of AES FX.

FlexTrade is a global leader in broker-neutral, execution and order management trading systems for equities, FX, options, futures and fixed income. A pioneer in the field, FlexTrade introduced the first trading system that allowed clients to control and customize their proprietary algorithms while maintaining the confidentiality of their trading strategies. Change is the only constant in electronic trading. That's why FlexTrade is continuously upgrading its products and services. All can be tailored to meet the demanding requirements of a global client base of more than a 200 buy- and sell-side firms.